Maple Leaf Cement Factory Limited

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1 Powered by TCPDF ( The Pakistan Credit Rating Agency Limited Rating Report Report Contents 1. Rating Analysis 2. Financial Information 3. Rating Scale 4. Regulatory and Supplementary Disclosure Rating History Dissemination Date Long Term Rating Short Term Rating Outlook Action Rating Watch 22-Jun-2018 A+ A1 Stable Maintain - 06-Jun-2017 A+ A1 Stable Maintain - 25-Nov-2016 A+ A1 Stable Upgrade - 27-Nov-2015 A A1 Stable Upgrade - 09-Jan-2015 A- A2 Stable Upgrade - Rating Rationale and Key Rating Drivers The ratings reflect Maple Leaf s strong business profile supplemented by (i) sizable market share, (ii) recognized brand, and (iii) strong profitability. The company operates at 3.4mln tpa capturing market share of 7.2%. After commencement of announced capacity expansion (2.1mln tpa), market share will remain largely maintained due to aggressive expansion plans of industry players. However, the promising investment in Maple leaf power (40MW coal based power plant) would assist company in reaping cost efficiencies. However, due to low retention prices and fluctuating coal prices the effect is not visible in declining margins. Efficient supply chain management coupled with lower fuel costs assisted sustenance of EBITDA margins historically, however lately surge in international coal price impacted margins. Nevertheless, favorable sector dynamics, on the back of rising local infrastructure activity, has continued to support cement dispatches. Hence, capacity utilization, while showing an increase, has reached optimal level for existing capacity. The entity s financial risk remains fairly low due to moderately leveraged capital structure and enhanced risk absorption capacity. Going forward, after incorporating planned debt the financial risk remain low on the back of healthy internal cash generation. The ratings recognize the company's seasoned management team, having sound technical stature and quality support infrastructure. The ratings are dependent on the management's ability to sustain business volumes along with healthy margins. Any significant deterioration in the sector s outlook particularly any unfavorable change in demand and expansion matrix, thereby exerting pressure on prices, may negatively impact the ratings. Name of Rated Entity Type of Relationship Purpose of the Rating Applicable Criteria Related Research Disclosure Solicited Entity Rating Methodology Corporate Rating Methodology(Jul-17),Methodology Correlation between long-term and short-term rating scale(jun-17),methodology Criteria Modifiers(Jun-17) Sector Study Cement(Nov-17) Rating Analysts Sehar Fatima sehar.fatima@pacra.com Jhangeer Hanif jhangeer@pacra.com

2 CEMENT MAPLE LEAF CEMENT FACTORY LIMITED PROFILE Incorporated 1956 Major Business Engaged in manufacturing and sale of Grey and White Cement Legal Status Listed Head Office Lahore OWNERSHIP & GROUP PROFILE KMLG holds majority stake (~55%) in the company through Kohinoor Textile Mills Limited; rest is widely spread among FIs and general public KMLG a medium sized group mainly maintains interests in cement and textile sectors GOVERNANCE Overall control vests in eight members board; Board includes five Saigol family members including the CEO, Mr. Sayeed Saigol, a group executive director and two independent directors Good governance quality; board members carry sound business acumen and technical stature. MANAGEMENT Mr. Sayeed Saigol associated with the company since 2005 ably spearheading the company. He is supported by a team of professionals with relevant experience. SYSTEMS & CONTROLS Sound operational infrastructure; European technology Oracle based ERP solution; comprehensive MIS reporting framework Power requirement is of 50MW, which is met through multiple sources including WHR (15.5MW), FO-based generators (14MW), and remaining through WAPDA (20.5MW) PERFORMANCE Maple Leaf s sales have been on continuous rise since last few years. However, topline witnessed marginal growth during FY17 (FY17: PKR 23.9mln, FY16: PKR 23.4mln). Overall dispatches remained skewed towards local market in line with industry trend The turnover recorded for 1HFY18 is PKR 12.2mln (1HFY17: PKR 11.9mln). Gross margins deteriorated (1HFY18: 33.4%, FY17: ~40%) and EBITDA margins also dropped (1HFY18: ~35%, FY17: 40%) mainly due to lower retention prices and fluctuating international coal prices. Further on, with translation of rupee depreciation, the margins are expected to remain under pressure During 1HFY18, finance costs of the company increased to PKR 330mln (FY17: PKR 318mln). Hence, the net profit of the company stood at PKR 1.9bln (1HFY17: PKR 2.6bln). As at end-dec17, the company s investment portfolio stood at 18% (end-jun17: 21%) of equity base. Going forward, capacity expansion project is underway: 2.1mln tpa expected CoD Jan19 with an estimated cost of PKR 20bln. The planned debt to equity ratio is 40:60. FINANCIAL RISK During 1HFY18, Maple Leaf s working capital requirements, represented by net cash cycle (net working capital days) a function of inventory, receivables and payables improved to 16days (end-jun17: 21days). The company manages its working capital requirements through mix of internal generation and short term borrowings (1HFY18: PKR 3.7bln, FY17: PKR 3.1bln). Cash cycle decreased on account of decrease in inventory days. Current ratio witnessed marginal reduction, stood at 1.1x and 1.4x at end-dec17 and end-jun17 respectively. Core Coverage (end-dec17: 5.2x, end-jun17: 10x) remained within comfortable range Moderately leveraged capital structure (22% at end-dec17). Leveraging increased in pursuit of expansion; however expected to remain range bound

3 Cement Financials (Summary) BALANCE SHEET 30-Dec Jun Jun-16 1HFY18 Annual Annual PKR mln Non-Current Assets 31,366 23,735 22,884 Investments (Incl. associates) 5,104 5, Equity 5,050 4, Debt Current Assets 10,802 10,060 8,255 Inventory 1,137 1,301 1,210 Trade Receivables 1, Others 8,565 8,077 6,468 Total Assets 47,272 38,817 32,022 Debt 8,148 6,723 2,999 Short-term 3,765 3,138 1,425 Long-term (Inlc. Current Maturity of long-term debt) 4,383 3,584 1,574 Other shortterm liabilities 5,962 4,202 3,434 Other Longterm Liabilities 4,195 4,184 4,251 Shareholder's Equity 28,968 23,708 21,337 Total Liabilities & Equity 47,272 38,817 32,022 INCOME STATEMENT Turnover 12,290 23,992 23,433 Gross Profit 4,109 9,482 10,022 Other Income (214) (397) (623) Financial Charges (330) (318) (436) Net Income 1,973 4,777 4,885 Cashflow Statement Free Cashflow from Operations (FCFO) 3,170 7,444 9,298 Net Cash changes in Working Capital 943 (1,821) (1,326) Net Cash from Operating Activities 3,798 5,385 7,502 Net Cash from Investing Activities (9,008) (6,777) (1,710) Net Cash from Financing Activities 4,800 1,165 (5,576) Net Cash generated during the period (411) (227) 216 Ratio Analysis Performance Turnover Growth 2.7% 2.4% 13.1% Gross Margin 33.4% 39.5% 42.8% Net Margin 16.1% 19.9% 20.8% ROE 14.4% 20.2% 23.1% Coverages Debt Service Coverage (x) (FCFO/Gross Interest+CMLTD+Uncovered STB) Interest Coverage (x) (FCFO/Gross Interest) Debt Payback (Years) (Total Lt.Debt (excluding Covered Short Term Borrowings) / FCF Liquidity Net Cash Cycle (Inventory Days + Receivable Days - Payable Days) Capital Structure (Total Debt/Total Debt+Equity) 22.0% 22.1% 12.3% (Maple Leaf) June 2018

4 ENTITY CREDIT RATING SCALE & DEFINITIONS Credit rating reflects forward-looking opinion on credit worthiness of underlying entity; more specifically it covers relative ability to honor financial obligations. The primary factor being captured on the rating scale is relative likelihood of default. LONG TERM RATINGS AAA Highest credit quality. Lowest expectation of credit risk. Indicate exceptionally strong capacity for timely payment of financial commitments. AA+ Very high credit quality. Very low expectation of credit risk. Indicate very strong capacity for timely payment of financial commitments. AA This capacity is not significantly vulnerable to foreseeable events. AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC CC C D High credit quality. Low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be vulnerable to changes in circumstances or in economic conditions. Good credit quality. Currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances or economic conditions are more likely to impair this capacity. Moderate risk. Possibility of credit risk developing. There is a possibility of credit risk developing, particularly as a result of adverse economic or business changes over time; however, business or financial alternatives may be available to allow financial commitments to be met. High credit risk. A limited margin of safety remains against credit risk. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business, and economic environment. Very high credit risk. CCC Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. CC Rating indicates that default of some kind appears probable. C Ratings signal imminent default. Obligations are currently in default. Rating Watch Alerts to the possibility of a rating change subsequent to, or in anticipation of, a) some material identifiable event and/or b) deviation from expected trend. But it does not mean that a rating change is inevitable. Rating Watch may carry designation Positive (rating may be raised, negative (lowered), or developing (direction is unclear). A watch should be resolved within foreseeable future, but may continue if underlying circumstances are not settled. Outlook (Stable, Positive, Negative, Developing) Indicates the potential and direction of a rating over the intermediate term in response to trends in economic and/or fundamental business or financial conditions. It is not necessarily a precursor to a rating change. Stable outlook means a rating is not likely to change. Positive means it may be raised. Negative means it may be lowered. Where the trends have conflicting elements, the outlook may be described as Developing. SHORT TERM RATINGS A1+: The highest capacity for timely repayment. A1:. A strong capacity for timely repayment. A2: A satisfactory capacity for timely repayment. This may be susceptible to adverse changes in business, economic, or financial conditions. A3: An adequate capacity for timely repayment. Such capacity is susceptible to adverse changes in business, economic, or financial conditions. B: The capacity for timely repayment is more susceptible to adverse changes in business, economic, or financial conditions. C: An inadequate capacity to ensure timely repayment. Suspension It is not possible to update an opinion due to lack of requisite information. Opinion should be resumed in foreseeable future. However, if this does not happen within six (6) months, a suspended rating should be considered withdrawn. Withdrawn A rating is withdrawn on a) termination of rating mandate, b) cessation of underlying entity, c) the debt instrument is redeemed, d) the rating remains suspended for six months, or e) the entity/issuer defaults. Disclaimer: PACRA's rating is an assessment of the credit standing of an entity/issue in Pakistan. They do not take into account the potential transfer / convertibility risk that may exist for foreign currency creditors. PACRA's opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security s market price or suitability for a particular investor.

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